Retail sales in the U.S. rose more than forecast in July as consumer spending rebounded at department stores, auto dealers and electronics outlets, easing some concern the biggest part of the economy was foundering.

The 0.8 percent advance, the first gain in four months, followed a 0.7 percent decrease in June that was weaker than first reported, Commerce Department figures showed Tuesday in Washington. Economists projected a 0.3 percent rise, according to the median forecast in a Bloomberg survey. Sales excluding automobiles also climbed 0.8 percent.

Improved sales at merchants such as Gap Inc. and TJX Cos. indicate American households are looking beyond the global economic slowdown as hiring improves.

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At the same time, joblessness in excess of 8 percent is keeping consumer spending from surging, consistent with the Federal Reserve’s view that economic growth will “remain moderate over coming quarters.”

“The consumer is still alive but not especially strong at this point,” Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida, said before the report. “Sales are suggesting more of the same: the economy is still in recovery mode.”

Retail sales were projected to rise following June’s previously reported 0.5 percent drop, according to the Bloomberg survey. Estimates from the 85 economists surveyed ranged from a decrease of 0.2 percent to a gain of 0.8 percent.

Tuesday’s report showed the retail sales category used to calculate gross domestic product, which excludes sales at auto dealers, building material stores and service stations, increased 0.9 percent after a 0.2 percent decrease in June.

Second Quarter

The pickup in retail sales last month followed a quarter in which household spending grew at the slowest pace in a year. Consumer purchases, about 70 percent of the economy, expanded at a 1.5 percent annual rate from April to June, according to Commerce Department data.

All 13 major retail categories showed a gain last month, led by a 0.8 percent jump at auto dealers, a 0.6 percent rise at department stores that was the most since September, and a 0.9 percent gain at electronics and appliance outlets.

Spending increased 0.8 percent at clothing stores and 0.7 percent at general merchandise stores. Health and personal care sales jumped 1.1 percent, the most since May 2011.

Industry data showed retailers’ same-store sales at the more than 20 companies tracked by Retail Metrics Inc. rose 4.4 percent in July, almost four times analysts’ estimates, after a 0.3 percent gain in June.

Gap, Macy’s

Sales at Gap, the biggest U.S. specialty-apparel retailer, climbed 10 percent last month from the same period in 2011. Macy’s Inc., the owner of its namesake and Bloomingdale’s department stores, posted a 4.1 percent increase.

“This month we saw broad-based strength across the U.S.,” Sherry Lang, spokeswoman for TJX, said during an Aug. 2 sales conference call. Same-store sales at the owner of the Marshalls and T.J. Maxx chains rose 7 percent in July.

Demand at building-material stores rose 1 percent, Tuesday’s report showed.
Sales excluding automobiles and service stations rose 0.9 percent, the most since January.

Underpinning consumer demand, payrolls increased by 163,000 in July, the most in five months, according to Labor Department figures. While the improvement eased fears the U.S. labor market may continue stumbling following the second-quarter slowdown, the jobless rate rose to 8.3 percent.

‘Cautious Consumer’

“As we head into the much larger second half of the year, we are mindful that the macro environment remains pressured and uncertain,” Harlan Kent, chief executive officer of Yankee Candle Co. Inc., which sells its products to retailers like Macy’s and Target Corp., said on an Aug. 9 conference call.

“We expect cautious consumer spending.”

The Fed remains cautious about the recovery’s resilience as well. Central bank policy makers said on Aug. 1 they will pump new stimulus if necessary to boost growth and reduce a jobless rate that’s been stuck at 8 percent or higher for more than three years.

More expensive fuel could make that task more difficult by eating up some of consumers’ cash for other goods and services. The average price of a gallon of regular gasoline rose to $3.70 Monday after sliding to $3.33 in early July, the lowest in six months, according to AAA, the nation’s largest auto club.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown